Fitch Rts Ochsner Clinic Foundation's -- Louisiana -- $340MM Ser 2002 Bnds 'A-'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Aug. 16, 2002

Fitch Ratings assigns an 'A-' long-term rating to the $150,940,000 Louisiana Public Facilities Authority Revenue Bonds (Ochsner Clinic Foundation Project), Series 2002A and to the $189,000,000 Louisiana Public Facilities Authority Revenue Bonds (Ochsner Clinic Foundation Project), Series 2002B. The Series 2002A bonds are expected to be insured by MBIA Insurance Corporation, whose financial insurer-strength is rated 'AAA' by Fitch. Proceeds from the Series 2002A bonds will be used to refund Alton Ochsner Medical Foundation's Series 1992 bonds. Proceeds from the Series 2002B bonds will be used to fund $112 million of various future capital projects, reimburse for prior capital projects ($30 million), fund partial capitalized interest ($22 million), and fund a debt service reserve ($12 million) for the Series 2002B bonds only. The bonds are scheduled to be sold on August 20 through negotiation by managing underwriter Salomon Smith Barney.

The 'A-' rating is supported by Ochsner Clinic Foundation's (OCF) solid market position, quality reputation and increasing utilization, improving financial position of system entities, and operating synergies to be gained as a consolidated enterprise. OCF is a newly formed integrated delivery network comprised primarily of a 441-licensed bed tertiary and quaternary teaching hospital, a clinic with approximately 500 employed physicians with 31 satellite practice sites, Louisiana's largest health maintenance organization (HMO) with more than 200,000 members, and a 160-room hotel. OCF was formed through the August 31, 2001 acquisition of the Ochsner Clinic L.L.C. by the Alton Ochsner Medical Foundation (hospital). The hospital owned the Brent House Hotel and a 30% interest in Ochsner Health Plan, Inc. (OHP). The Clinic owned the other 70% of OHP. With the hospital's acquisition of the clinic, the combined organization became OCF and is the sole member of the Clinic, OHP, the hotel, and other smaller subsidiaries.

Fitch believes that OCF has an opportunity to improve on its already solid market share in a fragmented market through a renovation and expansion program of its main hospital and the shifting of lower acuity services to it's soon to be opened newly acquired Elmwood Hospital, located five miles away from OCF and will include 40-50 beds. OCF also plans to build a 90,000 square foot medical office building (North Shore Clinic) that will house an ambulatory surgery center and physician office space in the high growth areas of Covington and Mandeville, Louisiana. OCF's discharges are 12% ahead of last year's pace through July and the building projects will help to accommodate this volume growth and further alleviate its ambulance diversion and bed capacity issues. Consumer surveys conducted by an outside independent firm indicate that OCF has twice the leading consumer preference in image and reputation than the next leading competitor. With about 40% of the hospital's revenue from its owned health plan, OHP, Fitch believes that OHP represents a patient steering advantage as OHP is the state's largest health maintenance Organization (HMO).

Another key strength of OCF is management's track record in turning around unprofitable enterprises. After the Clinic posted a $27.5 million bottom-line loss (inclusive of its 70% ownership of OHP) in 1999, OCF's current management team was assembled at the Clinic and posted a $9.6 million surplus in 2000 (also inclusive of its interest in OHP), the last year before it was acquired by the hospital. The employed Clinic physicians' compensation agreements are contractually aligned with net revenue performance. The bulk of the Clinic's losses were from OHP, which had lost $12.6 million and $22.2 million before taxes in 1998 and 1999, respectively, before a turn-around specialist arrived and produced earnings before taxes of $7.6 million in 2000 and $15.8 million in 2001. The consultant is now the president and CEO of OHP.

Concerns include the volatile nature of operating an insurance product and current operations (through six months of 2002) that reflect an operating loss of $10 million and 1.8 times (x) maximum annual debt service (MADS) coverage of EBITDA, as well as the inherent challenges of integrating separate organizations in a cohesive operating culture. OCF's six-month performance includes $1.8 million in annual FICA payments for physicians that are made in the first quarter and $1.7 million in write-downs due to the bankruptcy of a large health plan, The Oath For Louisiana, Inc. OCF is actually $4 million ahead of its operating budget through six months of 2002, which accounted for these events, and management expects to meet or exceed its 2002 year-end budget of an operating loss of $8 million and MADS coverage of 2.5x. Management projects that it will break-even from operations and post MADS coverage of 3.1x in 2003. Fitch believes that these results are achievable given OCF's increased volume and its plans to create more capacity and open addition points of entry into the system. OCF's pro forma days cash on hand ratio, without consideration of OHP's $117.5 million liquidity and its expenses, is 120 days as of June 30, 2001.

OCF is located in New Orleans and had total revenue of $924 million in 2001. Management covenants to provide quarterly disclosure of financial and utilization information to bondholders.